Crude oil prices are recovering gradually in December after plummeting to the lowest level of 2018 in November. The decision of OPEC (Oil and Petroleum Exporting Countries) and Russia-led oil exporters to cut production levels, supply related problems in Iran and Libya and positive development on the trade war front between the United States and China are primary drivers of recovery in crude oil prices.
Crude oil prices are likely to go up in 2019 as global oil demand remains firm. At this stage, it will be prudent to invest in oil stocks with a favorable Zacks Rank.
Trade Truce Between the United States and China
On Dec 1, U.S. President Donald Trump and his Chinese counterpart Xi Jinping reached an initial agreement to permanently solve eight-month old trade-related conflicts between the two countries. The truce will be valid for the next 90 days during which the two countries will try to solve bilateral trade conflicts. Moreover, neither side will levy any further tariff on the other during this period.
On Dec 11, Bloomberg reported that China is mulling over reducing tariffs on U.S.-made cars from 40% to 15%. The proposal has been submitted to the Chinese cabinet for review. On the same day, President Trump also tweeted that he is hopeful of a possible solution to the trade tussle with China.
A cease fire between the United States and China regarding trade-related issues has alleviated investors’ concern regarding a global economic slowdown. Notably, many of the oil experts have projected lower global demand in 2019 anticipating the slowdown.
Supply Cut on Several Fronts
Last week, OPEC and Russia-led oil exporters decided to cut crude oil supply by 1.2 million barrels per day (bpd). This massive cut will help oil prices to stabilize. In a separate development, Qatar decided to quit OPEC in a bid to focus more on natural gas production than crude oil, indicating lower crude oil supply.
Moreover, on Dec 3, Rachel Notley, premier of Canada’s oil-rich province of Alberta, announced that she will force oil producers to cut production level by 9% in 2019 in order to stop crude oil prices from sliding further. Notably, Canada is the fourth largest oil producer worldwide.
Geopolitical Issues in Libya and Iran
The National Oil Company (NOC) of Libya has declared that oil exports from the El Sharara oilfield have been stalled since Dec 10. Notably, El Sharara is the country's biggest oil field, which was seized last weekend by a militia group. NOC said the shutdown will result in a production loss of 315,000 barrels per day.
On Dec 11, Iranian President Hassan Rouhani threatened to close the Strait of Hormuz if the United States moves to block oil exports from the country. The Strait of Hormuz is the world's busiest sea lane for oil shipments. Notably, the Trump administration has imposed sanctions on Iran’s oil export since Nov 5.
Our Top Picks
Crude oil prices are likely to remain northbound in the near term. Consequently, investment in oil exploration and production stocks will be lucrative. We have narrowed down our search to five such firms with a Zacks Rank of #1 (Strong Buy) or 2 (Buy).
The chart below depicts price performance of our five picks in the last three months.
Cabot Oil & Gas Corp. COG is an independent oil and gas company, exploring, developing, producing, and marketing natural gas, oil, and natural gas liquids in the United States. It sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here. The company has expected earnings growth rate of 113.2% for the current year. The Zacks Consensus Estimate for the current year has improved 9.7% over the past 60 days.
Eni S.p.A. E explores for, produces, refines, transports and markets natural gas, oil and produces chemicals. It sports a Zacks Rank #1. The company has expected earnings growth rate of 109.3% for the current year. The Zacks Consensus Estimate for the current year has improved 9% over the past 60 days.
Gran Tierra Energy Inc. GTE engages in the exploration and production of oil and gas properties in the United States. It sports a Zacks Rank #1. The company has expected earnings growth rate of 337.5% for the current year. The Zacks Consensus Estimate for the current year has improved 52.2% over the past 60 days.
Approach Resources Inc. AREX is an independent energy company focused on the acquisition, exploration, development, and production of unconventional oil and gas reserves in the United States. It carries a Zacks Rank #2. The company has expected earnings growth rate of 33.3% for the current year. The Zacks Consensus Estimate for the current year has improved 25% over the past 60 days.
Gulfport Energy Corp. GPOR engages in the acquisition, exploration, exploitation, and production of natural gas, crude oil, and natural gas liquids in the United States. It carries a Zacks Rank #2. The company has expected earnings growth rate of 29.1% for the current year. The Zacks Consensus Estimate for the current year has improved 15.9% over the past 60 days.
In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?
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